The Australian stock market was whacked by a combination of fears about the carbon tax, China losing control of its economy, the worsening health of the US economy and the focus on Italy as markets search for a new focus in Europe's debt woes.

Even without the impact of the carbon tax announcement on Sunday, the opening to trading yesterday was rough and the market opened down 1.5% lower and traded at that level all day.

The market will fall further today after offshore bourses were slammed by fears over Italy.

The problems in Europe make yesterday's worrying about the carbon tax look piddling and a buying opportunity, if the fear from offshore wasn't around.

European bank shares plunged, Wall Street ended down more than 1%, many European markets were off 2% and more.

While the carbon tax was the immediate problem, China, the US, Italy/Europe and worries about the health of consumer demand were also factors at work yesterday.

But most brokers and media reports focused on the carbon tax.

The ASX 200 ended down 72.4 points, or 1.6%, at 4582 while the All Ords dropped 1.5% and ended down 69 points at 4646.

So steep was the fall that it wiped out all the previous week's 1.4% rise.

The Aussie dollar eased by just over half a cent to $US1.0710 from around $1.0770 in New York last Saturday.

The worst hit were the companies the government has targeted as the biggest 500 polluters, including the steelmakers, miners and building materials companies.

The likes of OneSteel, BlueScope, Caltex, Boral and others.

Boral fell 1.4% or 6c to $4.18 and CSR was down 6c or 2% at $2.88.

Qantas and Virgin Blue warned of far rises (far easier if Tiger isn't flying in competition).

Investors took the use of the word "tax" as a negative and ignored the compensation and other plans offered on Sunday by the government.

So financials and energy shares fell 2% and materials were off 21.7%. Telcos were the only sector in the black, rising 0.6%.

Qantas and Virgin Australia reacted yesterday by saying air fares will rise because they can't absorb the higher cost of fuel when the scheme kicks in July 2012.

Qantas said the average domestic fare would go up by $3.50 per flight - or $7 a return ticket, while Virgin said it expected the increase to be about $3 per ticket, depending on the length of the flight.

Qantas shares fell 3.25%, or 6.5c, to $1.935 and gave back gains from last week in response to the grounding of Tiger Airways.

And Virgin shares fell 2.9%, or one cent, to 34c after the carrier said the carbon plan would result in a $45 million hit in 2012-13, based on current domestic fuel consumption. Qantas put its hit at around $115 million.

BlueScope Steel led the decline, ending down 6.7%, or 9c, at $1.26. OneSteel lost nearly 5%, or 10c, to $1.93.

Telstra added 2c to $3.02, while Newcrest advanced 5c to $38.80 after gold prices jumped on Friday in New York.

News Corp stock was the second worst-performer on the ASX50 - sandwiched between BlueScope and Qantas - dropping 5.1%, or 85c, to $15.92.

It fell 7.1% in New York overnight Monday and has now lost 12.7% in value in the past five trading days. BSkyB shares have lost much more in london and the takeover offer will now be further delayed as it isn examined by other UK regulators.

The company's non-voting stock slumped 5.4%, or 88c, to $15.37.

Other shares to lose ground included BHP Billiton off 1.4% or 65c to $44.30, Rio Tinto, which fell 1.3% or $1.15 to $83.20 and Macarthur Coal which dropped 2.8% or 32c to $11.08.

That was ahead of a bid after the bell from Peabody of the US and big steel maker, Arcelor Mittal (See below).

While these and other miners falls were blamed on the carbon tax, the downturn in Chinese imports of coal and iron ore, the higher inflation and last week's rate rise were also big factors because these companies depend heavily on China.

Origin shares fell 2.2% or 34c to $15.60, despite CEO Grant King generally welcoming the certainty a carbon tax rate of $23 a tonne will bring.(Origin is also a potential LNG importer.)

Rival power group AGL Energy was hardly touched, its shares easing 10c to $14.42.

And the market picked oil refiner Caltex as a sort of winner, despite it moaning yesterday that it was hard done by.

Investors sold the shares down by just 10c to $11.42.

The worries in Europe about Italy hit the banks harder than did the fears about China or the carbon tax.

The Commonwealth was the big loser, shedding $1.22 to $50.55, a fall of 2.3%. Westpac also fell heavily, losing 2% or 65c to $21.59.

The ANZ lost 34c or 1.5% to $21.56 and the NAB lost 1.3% to close at $24.32.

Among the retailers, Woolies fell 24c or less than 1% to $27.53.

Wesfarmers, which owns Coles, fell 61c to $31.37, a loss of nearly 2% after the company revealed a lift in its reinsurance bill and lower prices for coking coal exports from its big Queensland mine for the current quarter.

And small women's wear retailer Noni-B saw its shares lose 2.5c or 3.8% to 63.5c after it revealed static sales for the year to June 30, and confirmed previous warnings of a sharp fall in earnings for the year.

The company after-tax profit for the 2011 financial year, before any goodwill impairment, was expected to be in the range of $600,000 to $800,000 against a profit of $3.9 million in 2009-10.

It was the first retailer to put a figure on its expected profit fall for the year to June.

So while the carbon tax was the immediate worry, it wasn't the only one yesterday: China, the US, Europe and weak consumer spending here remain significant concerns and will be around after the worries about the carbon tax have faded.

And after the market closed, US-based coal miner, Peabody Energy revealed another attempt to bid for Macarthur Coal.

Peabody revealed it had joined with the world's biggest steelmaker, ArcelorMittal to offer $US5 billion ($A4.7 billion) for Macarthur Coal.

Together they own 16% of Macarthur.

Macarthur is based in Queensland and is the world's bigger producer of pulverised coal, as demand for steel making raw material intensifies.

The offer of $15.50 a share is at a 40% premium to Monday's close and came a day after the Federal Government revealed the details of its carbon tax.

The bid makes a mockery of the coal industry's claims to be hard done by the carbon tax.

In effect the bid confirms that one of the world's biggest coal miners sees no fears for it or its existing Australian business from the carbon tax.

Macarthur was the subject of a three-way bidding war in 2010 and agreed to enter talks with Peabody, the highest bidder with a $16 offer.

However, talks collapsed after Peabody cut its offer when the Federal Government revealed its mining resource rent tax.

Steel giant ArcelorMittal is the Macarthur's second largest shareholder with a 16.2%.

Citic Resources, Macarthur's biggest shareholder with around 22%, said it would study the offer.

The other major shareholder, Posco of South Korea, has not made a statement.

The proposal was conditional on receiving regulatory nod and getting 50.01% in Macarthur.

Copyright Australasian Investment Review.
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